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Active income is income for which services have been performed. This includes wages, tips, salaries, commissions, and income from businesses in which there is material participation. Passive or Residual income is an income obtained on a regular basis, with little effort required to maintain it.
Portfolio income is income from investments, dividends, interest, royalties and capital gains. Portfolio income does not come from passive investments and is not earned through normal business activity. Typically, income from interest on money that's been loaned does not count as portfolio income.
Now, looking at the sources of residual income, we are going to move in the ones which we think are the toughest to make to the ones which are the easiest to produce. Here we go.
7. Royalties: the creation of audio, books, inventions, machines, patents. A royalty is something you have sold or created and place it on a platform that you do not run and then get compensation based on when the merchandise is purchased or used. Most of us do not possess the potential to rapidly create royalty streams.
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This is the purest type of passive residual income, if you can achieve it. .
6. Network Marketing: Network marketing is a unique business model and has made more millionaires than any other business. The industry as a whole is growing and more companies are trying to leverage referrals or direct sales to increase revenue and market products. On the other hand, the industry as a whole is confusing to most and requires a tremendous amount of mental and emotional fortitude to make residual income possible.
The effort you have to put in is important to consider. .
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5. Subscription Models: Subscription models/Customer Hubs/Member Places These are businesses like Netflix, Costco, Sams Club. The subscription model has come to be almost its own category. However, it's considerable price and you have to continuously create and cultivate content and worth. The income is residual and combines devotion and education with community.
A good book that explains this version of residual income is Your Automatic Customer by John Warrillow. He walks you through, in plain English, the numerous styles of subscription models and how to potentially apply them to your business.
4. Affiliate marketing: Getting paid to tell folks what you enjoy and showing them where to get it. As a Dad, I tried 3 high seats before finding the check these guys out Bumbo. Now if I blog about the Bumbo and link to it for my Amazon account, and go someone buys it, then I can earn a commission.
A fantastic example of this will be Pat Flynn in PassiveIncome.com because he walks through how to set up your own system to maximize and profit from the passion.
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3. Business: As I mentioned, not all businesses are created equal when it comes to residual income. Lets have a peek at a local taco stand. Sure, that taco stand may have loyal patrons and also make the best damn beef taco youve ever had, but they also have to wake up each day and turn the lights on and fire up the grill to get paid for their special tacos.
So, literally tomorrow I am going to earn a fee whether I go in or not. Sure, I have to maintain relationships to keep earning that fee, but really that the income is residual because once I sign up one client I am going to make money off of their money perpetually.
Why do we call them the Power 2 Because these demand less specialization and expertise, and together with all the leveraged use of debt that is smart, can work together.
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2. Real Estate: Property is #2 for one reason, leverage using smart debt and other individuals money. When looking at real estate rents and the potential for income real estate supplies, it's the trifecta of residual income. To begin with, a home or rental property can enjoy, therefore capital appreciation is your very first long-term benefit of owning a house.
Other people are paying the mortgage, insurance, property taxes and maintenance at the same time you own this piece of property. Third, tax protection. Rental income is taxed at a lower rate than ordinary income and you also can depreciate property by taking a paper deduction on your annual tax return not to mention expensing the cost of mileage, mortgage interest, and upgrades to the property.
The fourth and maybe most hidden, but important benefit is that over time rents rise, protecting your money against inflation, while your mortgage interest can be at a fixed rate potentially. .
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1. The final and most effective form of residual income, in my opinion, is investing and insurance. Most people have 401Ks and IRAs, so that I am going to leave that for your investment side. Within this, I think our Foundation Freedom Phases is undoubtedly the simplest, safest and most powerful tool for several reasons: a.